ALTERNATIVE NEWS

Sunday, November 18, 2012

Prison of Debt Paralyzes West

By Cordt Schnibben: Be it the United States or the European Union, most Western
countries are so highly indebted today that the markets have a greater
say in their policies than the people. Why are democratic countries so
pathetic when it comes to managing their money sustainably?

In the midst of this confusing crisis, which has already lasted more
than five years, former German Chancellor Helmut Schmidt addressed the
question of who had "gotten almost the entire world into so much
trouble." The longer the search for answers lasted, the more
disconcerting the questions arising from the answers became. Is it
possible that we are not experiencing a crisis, but rather a
transformation of our economic system that feels like an unending
crisis, and that waiting for it to end is hopeless? Is it possible that
we are waiting for the world to conform to our worldview once again, but
that it would be smarter to adjust our worldview to conform to the
world? Is it possible that financial markets will never become servants
of the markets for goods again? Is it possible that Western countries
can no longer get rid of their debt, because democracies can't manage
money? And is it possible that even Helmut Schmidt ought to be saying to
himself: I too am responsible for getting the world into a fix?The most romantic Hollywood movie about the financial crisis isn't "Wall
Street" or "Margin Call," but the 1995 film "Die Hard: With a
Vengeance." In the film, an officer with the East German intelligence
agency, the Stasi, steals the gold reserves of the Western world from
the basement of the Federal Reserve Bank of New York and supposedly
sinks them into the Hudson River. Bruce Willis hunts down the culprit
and rescues the 550,000 bars of gold, which, until the early 1970s, were
essentially the foundation on which confidence in all the currencies of
the Western world was built.Creating Money out of Thin AirUntil 1971, gold was the benchmark of the US dollar, with one ounce
of pure gold corresponding to $35, and the dollar was the fixed
benchmark of all Western currencies. But when the United States began to
need more and more dollars for the Vietnam War, and the global economy
grew so quickly that using gold as a benchmark became a constraint,
countries abandoned the system of fixed exchange rates. A new phase of
the global economy began, and two processes were set in motion: the
liberation of the financial markets from limited money supplies, which
was mostly beneficial; and the liberation of countries from limited
revenues, which was mostly detrimental. This money bubble continued to
inflate for four decades, as central banks were able to create money out
of thin air, banks were able to provide seemingly unlimited credit, and
consumers and governments were able to go into debt without restraint. This continued until the biggest credit bubble in history began to
burst: first in the United States, because banks had bundled the
mortgages of millions of Americans, whose only asset was a house bought
on credit, into worthless securities; then around the globe, because
banks had foisted these securities onto customers in many countries;
and, finally, when these banks began to totter, debt-ridden countries
turned private debt into public debt until they too began to totter, and
could only borrow money from banks at even higher interest rates than
before.At the moment, the world has only one approach to getting out of this labyrinth of debt: incurring trillions of even more debt.What does all of this have to do with Bruce Willis and Helmut
Schmidt? Willis rescued the world's gold and, with it, the illusion of
the good, old world. Schmidt, as Germany's finance minister in the
1970s, set the debt spiral in motion and fueled the illusion in Germany
that countries could go into debt, and that this was good for everyone.When Schmidt's predecessor, Karl Schiller, resigned from the
government in protest over 4 billion deutsche marks in new debt, he
said: "I am not willing to support a policy that creates the impression,
to outsiders, that the government pursues the motto: After us comes the
deluge."Schmidt incurred 10 billion deutsche marks in new debt. Inspired by
crisis economist John Maynard Keynes, the German government believed
that economic stimulus programs would stimulate growth, but only under
the condition that the debt was to be brought down again in better
times.This economic policy was known in Germany as "global regulation." As
finance minister, and later as chancellor, Schmidt took advantage of the
oil crisis to drive up the government deficit with economic stimulus
programs. When Schmidt stepped down in 1982, annual government spending
tripled in comparison to spending in 1970, reaching the equivalent of
€126 billion ($161 billion), and the public debt increased fivefold, to
€313 billion. By today, the combined debt of federal, state and local
governments has climbed to more than €2 trillion.A Human Debt Gene?From today's perspective -- leaving aside all the effusive rhetoric
about Europe -- the introduction of the euro is nothing but the
continuation of debt mania with more audacious methods. The euro
countries took advantage of the favorable interest rates offered by the
common currency to get into even more debt.Can all of this be blamed on some sort of human debt gene? Is it
wastefulness, stupidity or an error in the system? There are two views
on how the government should use its budgets to influence the economy:
the theory of demand, established by Keynes, advocates creating
debt-financed government demand, which in turn generates private demand
and produces government revenues. In other words, building a road
provides construction workers with wages. They pay taxes, and they also
use their wages to buy furniture, which in turn provides furniture
makers with income, and so on.The other view, supply-side economics, is based on the assumption
that economic growth is determined by the underlying conditions for
companies, whose investment activity depends on high earnings, low wages
and low taxes. According to this theory, the government encourages
growth through lower tax rates. In the last few decades, the frequent
transitions of power in Western countries between politicians who
support supply-side economics (conservatives, libertarians and now some
center-left social democrats) and those who advocate Keynesian economics
(social democrats) has driven up government debt. When some politicians
came into power, they reduced government revenues, and when they were
replaced by those of the opposite persuasion, spending went up. Some did
both.When the debts of companies and private households are added to the
public debt, the sum of all debt has grown at twice the rate of economic
output since 1985, and it is now three times the size of the gross
world product. The developed economies apparently need credit-financed
demand to continue to grow, and they need consumers, companies and
governments that go into debt and put off the financing of their demand
until some time in the future. Of its own accord, this economic system
produces the compulsion to drive up the debt of public and private
households.Governments delegate power and creative force to the markets, in the
hope of reaping growth and employment, thereby expanding the financial
latitude of policymakers. Government budgets that were built on debt
continued to create the illusion of power, until the markets exerted
their power through interest.Interest spending is now the third-largest item in Germany's federal
budget, and one in three German municipalities is no longer able to
amortize its debt on its own steam. In the United States, the national
debt has grown in the last four years from $10 trillion to more than $16
trillion, as more and more municipalities file for bankruptcy. In
Greece, Spain and Italy, the bond markets now indirectly affect
pensions, positions provided for in budgets and wages.A country isn't a business, even though there are politicians who
like to treat their voters as if they were employees. Politics is the
art of mediating between the political and economic markets, convincing
parliaments and citizens that economic policy promotes their prosperity
and the common good, and convincing markets and investors that nations
cannot be managed in as profit-oriented a way as companies.

After four years of financial crisis, this balance between democracy
and the market has been destroyed. On the one hand, governments' massive
intervention to rescue the banks and markets has only exacerbated the
fundamental problem of legitimization that haunts governments in a
democracy. The usual accusation is that the rich are protected while the
poor are bled dry. Rarely has it been as roundly confirmed as during
the first phase of the financial crisis, when homeowners deeply in debt
lost the roof over their heads, while banks, which had gambled with
their mortgages, remained in business thanks to taxpayer money.In the second phase of the crisis, after countries were forced to
borrow additional trillions to stabilize the financial markets, the
governments' dependency on the financial markets grew to such an extent
that the conflict between the market and democracy is now being fought
in the open: on the streets of Athens and Madrid, on German TV talk
shows, at summit meetings and in election campaigns. The floodlights of
democracy are now directed at the financial markets, which are really
nothing but a silent web of billions of transactions a day. Every twitch
is analyzed, feared, cheered or condemned, and the actions of
politicians are judged by whether they benefit or harm the markets.The attempt by countries to bolster the faltering financial system
has in fact increased their dependency on the financial markets to such
an extent that their policies are now shaped by two sovereigns: the
people and creditors. Creditors and investors demand debt reduction and
the prospect of growth, while the people, who want work and prosperity,
are noticing that their politicians are now paying more attention to
creditors. The power of the street is no match for the power of
interest. As a result, the financial crisis has turned into a crisis of
democracy, one that can become much more existential than any financial
crisis.

Part 2: An Unequal Battle

The one sovereign stalks the other, while the pressure of the
markets contends with the pressure of the street. In Europe, in
particular, this has become an unequal battle. Since Jan. 14, 2009, when
Standard & Poor's downgraded Greek government bonds, the markets
have determined the direction and pace of European integration. They
want bigger and bigger bailout funds, they want to safeguard their
claims, they want a European Central Bank that buys up government bonds
indefinitely, they want slashed government budgets, they want labor
market reforms like the ones in Germany, they want wage cuts such as
those in Germany and, at the same time, they want these incapacitated
countries mired in recession to offer the prospect of healthy growth.And this is happening in a Europe in which the sovereign nations
don't truly know how much Europe they really want. The people who govern
Europe don't know either, which puts them at the mercy of the markets.
They have no common model for Europe, and they suspend the most basic
democratic ground rules to remain capable of acting. They have to use
tricks and bend agreements to prevent the euro from breaking apart.The gulf between those who govern and those who are governed, a
problem in any democracy, is complicated in Europe by the mistrust
between Europeans and bodies that seek to tame the crisis in their name.The actions of governments also generate mistrust. The German
government, in particular, has more confidence in the markets than in
the governments of Europe's crisis-ridden countries, and it finds the
power of interest rates more convincing than promises of reform.
Mistrust also stems from the relationship between governments and their
voters, so much so that it's become common to delay important decisions
until after elections and to keep them out of campaigns. There isn't
much confidence in the economic judgment of the people. If lawmakers can
hardly understand which bailout funds they are voting for, how many
billions they are pushing in which direction, how great the risk of
inflation is, what terms like target, derivative, leverage and
securitization mean, how much can citizens be expected to comprehend? A
citizen who hopes to understand the underlying problems of the euro
crisis would, at the very least, have to read the business sections of
major German newspapers like the Süddeutsche Zeitung or the Frankfurter Allgemeine Zeitung every day. Watching one talk show a week isn't enough.Even Good Debt Needs to Be ServicedThe democratic decision-making process reaches its limits in this
fundamental crisis, but even in the decades when debt was being
accumulated, it was clear that democracies have a troubled relationship
with money.There was always justification for new debt. The catchphrases
included things like more jobs, better education and social equality,
and the next election was always around the corner. Debt was justified
at the communal level to expand bus service or build playgrounds, at the
state level to hire more teachers or build bypasses and, at the federal
level, to buy tanks and fund economic stimulus programs.There is good debt and bad debt, but even good debt needs to be
serviced constantly. A closer look at which countries acquire and pay
off debt, and to what degree, reveals unsettling correlations: The more
often governments change and the more pluralistic they are, the faster
the debt increases and the more difficult it becomes to pay if off. The
more democracy, the looser the money. The only place money gets even
looser is in dictatorships. To hold an administration responsible for the debts of its
predecessors, there are debt limits in democracies. In Helmut Schmidt's
day, for example, there was a provision in the German constitution
stipulating that total debt could not exceed total investment. In
Europe, the provisions of the Maastricht Treaty, which is aimed at
ensuring the stability of the common currency, limit the amount of debt a
government can accumulate to no more than 60 percent of gross domestic
product.Debt Limits Have Never WorkedSo far, such debt limits have never worked in any country. Under new
laws in Germany, the federal government, starting in 2016, will only be
allowed to incur new debt amounting to 0.35 percent of GDP. The euro
countries have agreed to a similar rule, but it can only take effect if
all national parliaments agree.In some countries, there are already sparks of resistance against the
limitation of new debt. The Italian government refuses to implement
austerity measures demanded by the ECB and to approve a clause
stipulating automatic spending cuts. After mass protests, the Portuguese
government reversed cuts that had already been announced. Spain will
fall short of an agreed deficit target of 6.3 percent, with its deficit
actually predicted to come in at 7.4 percent. Euro-zone countries are in
fact not allowed to incur new debt of more than 3 percent of GDP.What makes those hoping to clean up budgets in the crisis-ridden
countries skeptical is the downward spiral triggered by such drastic
budget cuts, structural reforms and wage reductions. Private and public
demand is sinking while the economy shrinks, leading to higher
unemployment, less government revenue and higher debt. In Spain, after
four austerity packages, the unemployment rate has increased from 8
percent in early 2007 to 25.8 percent today, while the country's debt
ratio has doubled. In Portugal, unemployment has gone up by close to 100
percent in four years, with the debt ratio increasing from 72 to 114
percent. In Greece, after budget cuts amounting to more than 10 percent
of the country's total economic output, unemployment has almost tripled
and the debt ratio has risen from 113 to 160 percent.These horrific numbers are not just driving people into the streets,
but are also creating conflicts between politicians and economists.
There it is again, the old dispute between the supporters of supply-side
and Keynesian economics. Only when budgets have been balanced, taxes
are low and wages are brought down can growth return, says the one side;
those who cut public and private demand so radically are driving
countries into recession and driving debts up instead of down, says the
other. Average growth in Europe has declined continuously and was only
1.4 percent in 2011, while the economy is expected to shrink this year.For many debt-ridden countries, growth is one of four possibilities
to reduce debt. Balancing budgets through cuts and tax increases is
another. The third option is a debt haircut, which means declaring
bankruptcy and no longer servicing at least a portion of debts. The
fourth path is inflation, that is, allowing the debt to melt away on the
quiet at the expense of savers and consumers. But three to four percent
inflation can hardly be justified politically in Germany, although the
prospects are better in the United States and other countries. For this
reason, and in response to German pressure, European countries are now
trying out tough austerity programs.

Part 3: A European Depression and a Pending Japanese Disaster

Because governments are in disagreement, bodies are taking their
place that are turning into ersatz governments: the central banks.The ECB's decision to buy up unlimited amounts of the sovereign debt
of European countries is a replacement for political solutions for
which there are currently no majorities in the governments and
parliaments of euro-zone countries. The decision by the American Federal
Reserve Bank to inject hundreds of billions of dollars into the markets
again to stimulate economic growth results for the inability of
Democrats and Republicans to agree on a compromise between limiting debt
and economic stimulus programs. Printing money -- or betting hundreds
of billions once again -- is the last desperate response on both sides
of the Atlantic.What began four years ago with the bursting of a credit bubble in the
mortgage market is being combated with more and more new debt in the
trillions, thereby inflating the next, even bigger credit bubble.The fresh trillions circle the world in the search for yield, but
only a small part of the money flows into the real economy, where
investments in new production plants produce lower returns. Instead, the
trillions slosh back and forth, from one financial market to another,
from the foreign currency market to the commodities market, and from the
gold market to the stock market and back again.Because these trillions are not reaching the real economy, the risk of inflation is currently smaller than Germany's central bank, the Bundesbank, and its president would have us believe.
But every saver and everyone with a life insurance policy pays for the
central bank's low interest-rate policy with low interest rates. When
central banks keep interest rates close to zero for long periods of
time, which they have done for years, they disadvantage ordinary savers
and favor major investors, gamblers and banks, which can borrow at low
rates and invest the money elsewhere at a profit.Blaming the BanksWho and what has gotten the world into such trouble, and how can it
extricate itself again? Not surprisingly, former Chancellor Schmidt
blames investment bankers, the managers and bankers who flooded the
world with worthless securities and long speculated on the sovereign
debt of crisis-ridden countries, and who hedged their risks, which were
much too high, with far too little capital and therefore had to be
rescued with taxpayer money. Banks are still the focus of all problems
in the financial markets. They still have to be supplied with money, and
they still pose a threat to the system.And those who allowed them to become so powerful are all those
politicians and governments that gave the financial markets so much
freedom, often socialized the risks, incurred too much government debt,
and allowed the municipalities, states and countries to become so
irresponsible. "The market" is not some group of experts, nor is it the
last resort of collective reason. It is an orgy of irrationality,
arbitrariness, waste and egoism. "Democracy" is not some event involving
citizens, or some celebration of altruism and far-sightedness, but
rather the attempt to bundle diverging interests into decisions in a way
that's as peaceful as possible.Together, the market and democracy are what we like to call "the
system." The system has driven and enticed bankers and politicians to
get the world into trouble, or least one could argue that if they too
weren't part of the system. And we could sweep it away if we had a
better one.Instead, we are left with an undisguised view of the system. One of
the side effects of the crisis is that all ideological shells have been
incinerated. Truths about the rationality of markets and the symbiosis
of market and democracy have gone up in flames.The Problems of Modern Capitalism The European depression is only prelude, with the Japanese disaster
waiting in the wings. The country's debt-to-GDP ratio is 230 percent,
and the government is dependent on the opposition approving the issue of
new government bonds. Lurking behind it all is the American abyss, the
debt drama of the next few months, the showdown and duel between
Democrats and Republicans over which party can blame the other one for a
national bankruptcy.And then, finally, we have a clear view of the three biggest problems
in finance-driven, democratically constituted capitalism: First, how
can a debt-ridden economy grow if a large part of demand in the past was
based on debt, which is now to be reduced?The second major problem of modern capitalism is this: How can the
unleashed financial markets be reined in again, and how should the G-20
countries come up with joint rules for major banks, which are their
financiers and creditors, and for markets, which punish and reward these
countries through interest? How much freedom do financial markets need
to serve the global economy as a lubricant, and what limits do they need
so that banks, shadow banks and hedge funds do not become a threat to
the system?Third, how do governments mediate between the power of the two
sovereigns, how do they reestablish the primacy of citizens over
creditors, and how does democracy function in debt-ridden countries? How
can politicians react without burdening countries with more debt, and
how can they reduce that debt? In fact, how can they even govern anymore
in this prison of debt? In the past, future revenues were mortgaged, in
municipalities, states and the federal government. This now makes it
difficult to structure the present and the future. Today only about 20
percent of the federal budget is truly politically available, as
compared with 40 percent when Schmidt was still in office.It is always only at first glance that the world is stuck in a debt
crisis, a financial crisis and a euro crisis. In fact, it is in the
midst of a massive transformation process, a deep-seated change to our
critical and debt-ridden system, which is suited to making us poor and
destroying our prosperity, social security and democracy, and in the
midst of an upheaval taking place behind the backs of those in charge.A great bet is underway, a poker game with stakes in the trillions,
between those who are buying time with central bank money and believe
that they can continue as before, and the others, who are afraid of the
biggest credit bubble in history and are searching for ways out of
capitalism based on borrowed money.

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Dear Reader

Are YOU Involved or Institutionalized? Our belief that the global economic crisis would persist and deepen is being vindicated and current events are now as clear as ever on the matter. Time for all of us to wake up, stand up and be counted or continue to lose all our liberties. Protect your homes and families. The sun will still rise but financial chaos and suffering due to the global fascist banksters' greed and corruption, slaughter due to the MIC's directed world wars in our name etc. is not pretty. We are feeling the effect on our society the size and like of which we have never known.

We are way past being surprised at the blanket suppression of this information by the BBC and main stream media propaganda machines. Information is clearly available elsewhere and unchallenged, accounts for a far more realistic rendition of what we have actually seen and what we continue to see develop, whilst the main stream news put out leaves many confused and bewildered, 99.9% of us wrong footed and the awakened indignant. As we can now see, the apparently 'soft fascist' powers that be aim to block these alternative avenues of information. Book up, "Long Live the Evolution."Feel free to copyme. Angelo Agathangelou.

P.S. The MHRM, are calling out the constant misinformation disseminated by and maintain our open challenge especially to western radical feminists, to point out just one area where government in the UK, Europe or anywhere else in the English speaking world disadvantages women and girls when compared with men and boys, ...the wage disparity myth having long been debunked by serious academics and statisticians. So far this challenge has remained unanswered. Western feminism is obsolete.

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N.B.

These pages exist because we believe information from all perspectives should be aired, they do not necessarily reflect our views unless explicitly stated. We do not intend to cause offense, but we feel there is a need for such a shift in our society that to call it change rather than evolution would be an understatement. A velvet revolution towards living with reality for the individual, the family and society. A revolution towards living within our means and taking responsibility for ourselves, instead of mortgaging the future of our children to bloated leech faux democracy for the benefit of Ponzi 'banksters' and The Military Industrial Complex.